Euro vs. USD: Pros and Cons

Euro vs. USD: Weighing the Pros and Cons of the Euro’s Strength

As of February 11, 2025, the EUR/USD exchange rate of just shy of 1.032 with quite tight EURUSD spreads according to Bybit is shaped by a mix of economic trends, policy decisions, and global events. Some forces support a stronger euro, while others pull it lower against the U.S. dollar. Let’s break it down into clear pros and cons.

Pros for Euro Strength Against the USD

1. Europe’s Economy May Be Turning a Corner

Some analysts, including UBS Global Wealth Management, see signs of recovery in the Eurozone economy. If growth data improves, investors may gain confidence in the euro, pushing it higher. Some even forecast that EUR/USD could reach 1.16 in the coming months.

2. U.S. Debt Could Weaken the Dollar

While the U.S. economy remains strong, its government debt is soaring. The U.S. has been running massive budget deficits, which could make the dollar less attractive in the long run. Meanwhile, some European countries are managing their finances more cautiously, which may help the euro hold its ground.

3. Eurozone’s Trade Balance Is Improving

Europe’s exports are rising, creating a trade surplus. A positive trade balance means more global demand for euros, which could support the currency. In contrast, the U.S. runs a trade deficit, meaning it spends more on foreign goods than it sells.

Cons for Euro Strength Against the USD

1. Europe’s Economy Is Still Struggling

Recent economic data from the Eurozone hasn’t been great. The Purchasing Managers’ Index (PMI), which measures business activity, has been weaker than expected. This slowdown has already pushed EUR/USD lower.

2. The Fed vs. ECB: A Key Difference

The European Central Bank (ECB) has been slow to raise interest rates compared to the U.S. Federal Reserve. The Fed’s higher rates make the dollar more attractive for investors, while the ECB’s cautious approach limits the euro’s potential gains.

3. Geopolitical Risks

Europe is more vulnerable to global tensions, especially regarding energy supplies and conflicts near its borders. These risks can make investors nervous about holding euros, preferring the safety of the U.S. dollar.

4. Some Analysts See More Euro Weakness Ahead

Financial institutions like TD Securities expect EUR/USD to fall further, potentially toward 1.01. Their reasoning? The combination of slow economic growth and weaker monetary policy from the ECB.

Euro vs. USD on the Weekly Chart

Key Takeaways from the Weekly EUR/USD Chart:

1. Trading Range:

   • The speculative yellow trading range spans from approximately 1.125 (upper) to 0.95385 (lower).
   • Current price: 1.03175—sitting just under the middle of this range.
   • Given the nature of trading ranges, a retest of lower levels remains a likely scenario, especially since the range lacks a second lower touchpoint for confirmation.

2. Key Resistance Levels for Short Setups:

   • 1.07: Strong resistance, likely a short opportunity if price retraces higher.
   • 1.06011: A previous 200-day support level that turned into resistance, broken on Nov 11, 2024, after holding for ~200 days since April 15, 2024.
   • Bear Flag Breakdown & Retest: The rising channel (red bear flag) broke down, retested perfectly, and continued downward—confirming bearish structure.

3. RSI Analysis – Momentum Still Bearish:

   • The RSI (purple line) and its moving average (yellow line) are both sloping downward.
   • Historically, the RSI has reached the 30 level on Nov 18, 2024, and Jan 6, 2025—suggesting more downside potential.
   • If RSI continues lower, another test of that 30-level or new lows could happen.

4. Bearish Bias Maintained:

   • Given the trend, price structure, and RSI weakness, EUR/USD remains bearish unless strong bullish catalysts emerge.
   • Short-term bullish trades may be possible using VWAP, volume profile, and other order flow tools, but overall, this is not a market to be overly bullish on.

5. Final Thought:

   • No financial advice—this is just technical analysis.
   • The range remains speculative but aligns with the broader bearish trend.
   • Key takeaway: Until EUR/USD breaks above major resistance (1.07+), sellers remain in control

A Different Take on the Euro’s Future

As the euro and dollar continue their tug-of-war, one big question remains: Is the dollar’s dominance fading, or is the euro just catching its breath before weakening further?

Europe may have a bit more strengths than what most of the media is recently giving it —strong trade and cautious spending—but indeed also challenges like slow decision-making and economic uncertainty. At the same time, the U.S. faces debt issues and high inflation.

But maybe the real question is this: Are we measuring strength the wrong way? Instead of focusing on interest rates and economic data, perhaps investors should ask which economy is adapting faster to a rapidly changing world (anyone for AI…?).

The answer to that question may decide where EUR/USD goes next.

This article was written by Itai Levitan at www.forexlive.com.